Question

How would I make a journal entry for paying cash for a service in advance? What accounts would I use? Would I debit prepaid expense and credit cash?

Then, how i make a journal entry if the service was never performed? I never got the cash back nor the service. What accounts would I use?

Answer 1

1)no, prepaid account should nor be debited, because expenses has to accrue yet, it is just advance for services to be received in future. entry will be as follows .

service suppliers A/c (accounts payable ) debit   xxxxx

               cash/bank A/c credit   xxxxx

2) if we dont get the services for the amount paid , it is a loss, hence should be debited to profit and loss account or any other appropriate account for such losses.

loss on advances paid or profit & loss account debit     xxxxx

                service suppliers A/c (accounts payable ) credit xxxxx